With last Friday’s better than expected U.S. jobs report both U.S. and European headline stock indices broke key resistance areas.  With the S&P 500 above 1600 and the Dow Jones Industrial Average near the 15,000 mark, what’s next for the broader tape?

The 2013 rally has frustrated many a bear, yet from a trader’s point view, the struggle seems silly if you can just stay the trend – easier said than done mind you.  The S&P 500 above 1600 (funny as that seems to write), the longer the index manages to stays above there the higher the chances that its next upside target will be somewhere between 1640 – 1660.  From where I sit, if last Friday’s post jobs report rally was to be a so called pop and drop reaction, the drop should have already at least in part occurred by now.

To yours truly the name of the game is to stay the trend, at least for another 20 – 40 points for now.  The melt-up can continue as funds must chase the market higher and the retail investor is increasingly being left out of it all.  When would it be time to get more defensive?  Any significant one day or multi-day reversal formation should make you sit up in your chair and get more defensive for the near-term.  There are plenty of arguments to be made that the tape is at least near-term extended.  For example, the S&P 500 is currently as much above its 200 day simple moving average as it was below it at the lows in 2009.  Always consider both sides of the tape.

From a long-term perspective note that the S&P 500 is now well past its previous all time highs and if the rotation into cyclical sectors continues, could continue higher from the longer term time-frames as well.

spx important multi-year context chart

Last week the rotation from more defensive sectors into cyclically-exposed sectors became apparent.  The below intra-day chart from last Friday and yesterday shows this particularly clearly.  Note the defensive sectors (utilities, healthcare, consumer staples) tumbling while cyclicals rally.

intraday rotation into cyclicals

Yesterday a number of cyclical sectors such as the industrials broke out past their 2013 highs.  This too is not bearish for the time being, at least not for the medium term, which of course doesn’t preclude any minor setbacks.

xli

The Dow Jones Industrial Average is snuggling up with the 15,000 mark, although already well into all time highs.  It’s previous all time high near 14,200 should act as first support on any pullback.  This index too could have a couple of more percent to rise on pure momentum in the intermediate term.

DJIA weekly chart

 

 

 

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